Sub-Prime Loans and Sub-Prime Journalism

I was driving along in my SUV the other day, happily emitting carbon (from the vehicle, that is) and doing my small part to warm the planet, when I heard yet another report on the radio about the sub-prime mortgage "meltdown".

"Meltdown" is the descriptor I hear most commonly associated with the sub-prime mortgage issue. It's a highly charged word, isn't it? It conjures up images of the catastrophic failure of a nuclear power plant or the complete mental and emotional collapse of a person -- think Britney Spears getting her head shaved and going commando to LA night clubs.

"Crisis" and "mess" are the other favorite words used by the media when reporting on sub-prime mortgages. Again, these are negative, anxiety-producing words.

If you are the typical, hard-working American, you are probably going about your busy life and you know little or nothing about sup-prime mortgages. But, from the evocative words used in the popular press to describe this financial phenomenon, you'd probably conclude that:

1. Sub-prime mortgages are the biggest threat to the American economic system since the stock market crash of 1929 and


2. Sub-prime lenders must be a scurrilous group of scoundrels who are just slightly less evil than Attila the Hun, Vlad the Impaler and George W. Bush.

I'm always suspicious when issues get reported in emotionally charged words. So I went looking for some facts. What is the magnitude of the sub-prime lending issue?

As an aside, I should note that "sub-prime" loans are loans that are made to borrowers who are worse credit risks than "prime" borrowers. I need to clarify this because of a conversation I had recently on this issue with some extended family members. After we had talked for a while, I realized that they believed that "sub-prime" loans were loans that were made to people with A+ credit.

To them, a sub-prime loan denoted a loan that had an interest rate that was below the prime rate! Obviously, only the very best borrowers get rates that are below the prime rate. Thus, if we are having a sub-prime mortgage meltdown, then we are in very deep trouble indeed since even super well-qualified buyers are not able to keep up with their home loan payments!

But "sub-prime" does not refer to the interest rate -- it refers to the quality of the borrower. Sub-prime loans are made to sub-prime borrowers who have had some credit problems in their recent past. This is why sub-prime loans are riskier loans.

At any rate, like I said, I went looking for some facts on this matter. I spent a couple hours curled up with Google but couldn't turn up any quantitative data. I found a Mortgage Bankers' Association (MBA) report that had the info I wanted but it cost $60 and it would have required a lot of number crunching to get the stats I wanted.

Then, a couple days later, I stumbled onto the gold mine I had been seeking. I found it here at the blog of Mark J. Perry, a professor of economics and finance at the University of Michigan. It turns out that he had purchased the MBA report and had done the number-crunching for me. The following chart gives the pertinent data.

Stunning! More than 4 out of 10 homeowners are prime borrowers who have fixed rate loans on their properties.

And, what is the 2nd most common mortgage for homeowners? Drum roll please ... it is NO MORTGAGE! That's right. Almost 35% of homeowners have no loan on their properties. They own their properties free and clear!

And what about the dreaded sub-prime loans? Only 8.5% of homeowners have these types of mortgages.

Which leads to an obvious question: How can this relatively small precentage be creating a massive crisis? Are these mortgages responsible for all the foreclosures?

Sub-prime loans did account for more than half of all foreclosures in a recent reporting period. However, the overall oreclosure rate is within historic norms at the moment. Of course, the actual number of foreclosures is at an all-time high. This is because the population of the nation is at an all-time high and because the rate of home ownership is at an all-time high. However, to get some feel for the magnitude of the problem, we have to look at the "rate" of foreclosure.

The current rate of foreclosure is about the same as it was during housing downturns that peaked in 1966, 1974 and 1989. I wish the rate was lower and we need to be appropriately concerned but, by any measure, it has not approached seismic or cataclysmic proportions.

Furthermore, many reports are suggesting that the reasons for foreclosure remain tied to personal factors such as job loss, illness, divorce or death and not strictly because of the type of loan selected.

And here is one more issue I'd like you to think about -- have you ever heard a single story about the benefits of sub-prime loans? I haven't.

The main stream media love the anecdotal story. They love to find someone who has lost her house and show you how this fine person was the victims of some predatory lender.

And, of course, those stories are out there. Some people have gotten very poor advice and have been tricked into taking on inappropriate loans. But this is true of everything in life. People have been talked into buying crappy cars or expensive health club memberships that go unused after the first twenty days of the new year. There are bad actors and sad stories in every industry.

The question is not whether some people have been harmed; the more appropriate question is whether sub-prime lending has been generally helpful or harmful. In this regard, we know that home ownership is the key component to wealth-building in the US. Just look at the stats above which show that 35% of homeowners own their houses free and clear.

And, more generous lending guidelines allowed more people to own a home. Lending guidelines began to loosen in the mid-1990s and sub-prime lending really got going in 2001 and 2002. Partly as a result of this change, home ownership rose from just over 65% of Americans owning their own homes in 1996 to just under 69% ownership in 2006.

More aggressive lending allowed almost 10 million more people to participate in home ownership. And 1996 to 2006 was a very good time to own real estate in most parts of the country. Home values went up substantially during that period.

So why don't we see any anecdotal stories about the people who have benefited from sub-prime lending?

I recently talked with a young couple in Arizona. Right out of school and with no real credit history and no down payment money, they were able to buy a house for $190,000. Two years later, it was worth $340,000. It has now dropped backed to about $275,000 but they are still better off financially than they would have been without the house.

In the early 1990s, this story would not have been possible. This young couple would have been frozen out of the market and would have lost out on the possibility of wealth building at a young age.

In reality, my anecdotal Arizona couple is probably more representative of what sub-prime mortgage lending has produced than the stories of tragic loss I typically see and hear in the media. But we don't hear the positive stories.

With foreclosure rates at about 1% per year right now, we can expect about 100,000 of the ten million newly empowered home owners to go through this traumatic experience in the coming year. Our hearts should go out to them. But 9.9 million people will remain in homes they would not otherwise have owned and thus have a chance to build wealth they would not otherwise have realized.

I know some of these people myself. I’ve had two or three sub-prime borrowers that I’ve helped with real estate purchases and financing over the last couple years. They are all wonderful people and are enjoying the long-term advantages of home ownership. Sub-prime lending is not an abstract issue for me – it has a personal face.

Why do the main stream media ignore the positive aspects of sub-prime lending? There are many reasons: a preference for bad news, political bias, etc. I won't make the case for all these factors right now.

Rather, I'd just like to point out how the media's reporting on this issue is quite ironic. I've heard main stream media icons like Rather and Brokaw and Evan Thomas (Newsweek) bemoan the rise of new media like talk radio and the Internet and blogging. There are no editors or fact checkers, they allege. The new media over-simplify issues and don't give "texture" and "context". The new media are not "neutral" and "objective" like the main stream press.

These main stream media moguls are just blind to their own prejudices. They are the only ones who still believe this myth of main stream media objectivity. And their reporting on the sub-prime lending issues is a prime example of how they fail to give nuanced texture and context.

So stop listening to these dinosaurs. When ever they report on issues I know something about, they almost always have it wrong. Why waste your time paying attention to unreliable sources?

And add Mark J. Perry's blog to your favorites and read it often. It is a wealth of great info on the economy and gives a perspective you won't get from network TV or radio news.

I'm concerned about sub-prime lending and we need some appropriate, measured action on this issue. But I'm a lot more concerned about the sub-prime journalism of the main stream media. Their simplistic, biased and alarmist reporting is a much greater danger to this country.

________________

Note: You may know that I'm a real estate agent and a mortgage broker. Thus, this whole analysis could appear self-serving or self-justifying. My profession, however, has nothing to do with this issue. I'm continually noticing how the majority of the press misses the point on economic issues and there will be many more blog postings over the next few months on this issue that have nothing to do with real estate.

As always, feel free to give your honest reactions. And feel free to dissent. I love affirmation but dissenting views are always helpful.

Chuck Colson: Southeastern US drought is God's judgment on the American Church

In C. S Lewis’ allegorical tale entitled The Pilgrim’s Regress, John (the Pilgrim) gets a mixed message from the Steward (a priest) about the Landlord (God) and his attitude towards his tenants (people). The Steward wanted John to know that “… the Landlord was quite extraordinarily kind and good to his tenants, and would certainly torture most of them to death the moment he had the slightest pretext.”

What Christian has not felt this tension in reading the Bible? Is God fundamentally kind, gracious and compassionate or angry, judgmental and demanding?

Charles Colson has now weighed in on this centuries long debate on the nature of God’s dealings with mankind and it seems that God is pretty angry with the American church at the moment.

Colson has become convinced that the drought in the southeast part of the United States is the judgment of God on the church in America. To make sure that we understand that His displeasure is with believers and not with secular America, God has sent this drought to the most overtly religious section of the nation – the Bible Belt.

What is God saying in this drought? According to Colson, God is upset with us (his followers) because “… we have been disregarding His Word” and because “… we have been going to church to make ourselves feel good and have our ears tickled …” and also because we have allowed therapy to replace truth.

Colson believes that God is “… telling his people to repent, to get serious about what we believe, to hunger for the Word of God, to seek holy living, and to ask God’s forgiveness.”

We need repentance and forgiveness, in part, “… for looking for a political savior … for blaming the nation’s moral collapse on the gay-rights movement, or on the media, or on the politicians, …” Instead, we should “… look right at the people whom God expects to know better … you and I.”

His connection of the drought with God’s judgment grew out of a devotional Colson had with his wife over breakfast on December 9, 2007. After reading the story of Elisha providing food for the prophets of God in the midst of a famine (2 Kings 4), the devotional directed them to read Leviticus 26:3-5 which says “If you follow my decrees …, I will send you rain in its season ...”

A newspaper sat on the kitchen table that morning and a front-page article warned about new adverse consequences from the drought. Colson reports that he had been wondering for many months if the drought might be a judgment from God and the juxtaposition of the newspaper article with the reading of the passage in Leviticus convinced him that God wanted him to connect the two. He tells us that he said, “Okay, Lord, I get it.” What he “got” was that God is not sending rain because the American church is not obeying his decrees.

My initial reaction to all of this was to remember the famous words of one well-known church leader: “Well isn’t that special?”*

And, after further reflection, I have to confess that, unlike Colson, I don’t “get it.”

Let’s stipulate, for the sake of discussion, that Scripture seems to portray God as sometimes sending flood or drought or other phenomena as judgments. At the same time, the Bible also makes it clear that not all suffering and calamity are due to sin.

The story of the man born blind (see John 9) immediately comes to mind. The disciples apparently shared Colson’s tendency to connect suffering with moral failure. When they encountered a man who had been blind since birth, they asked Jesus whether his blindness was due to his own sin or the sin of his parents. They knew somebody had screwed up and they just want to know who it was!

Jesus did not accept their false dilemma. The correct answer to their multiple choice question turned out to be neither (a) or (b) but rather an option they did not consider – namely, none of the above. “It was neither that this man sinned, nor his parents; …”, Jesus declared. In this story, Jesus clearly teaches that calamity is not always linked to wrongdoing by the individuals involved in the calamity.

Job is another example where suffering was not related to wrongdoing. He suffered as a righteous man and, interestingly, it was his misguided friends who chalked up Job’s suffering to some wrongdoing on his part. The friends were mistaken.

Furthermore, keep in mind that Satan was the immediate cause of Job’s misery and we see this same connection between misery and Satan being taught by Jesus. He cured a woman of a sickness that had kept her bent over for eighteen long years (Luke 13) and he told us that the Satan was the cause of that affliction.

In addition, Jesus discourages the natural human tendency to tie calamity to specific human sinfulness in a fascinating story told in Luke 13. In that story, some people told Jesus about the fate of certain Galileans. They were killed by Pilate and their blood was mingled with pagan sacrifices.

Jesus responds, "Do you suppose that these Galileans were greater sinners than all other Galileans because they suffered this fate? I tell you, no ... Or do you suppose that those eighteen on whom the tower in Siloam fell and killed them were worse culprits than all the men who live in Jerusalem? I tell you, no, …"

I believe that Jesus is teaching many truths in this encounter but I’ve quoted the passage selectively to bring out the one truth that applies to our current discussion. If I had to paraphrase Jesus’ message here, it would go like this: “Look, if you want to find a reason for calamity and disaster in the actions of the people who suffer, you can always find it. Everyone is flawed and imperfect. There are no perfect people or institutions. When tragedy strikes, you can always relate it to some moral failure in the party affected by the tragedy.”

Thus, even this short examination shows that we have a number of concepts taught in Scripture: (1) Calamity is sometimes God’s judgment against wrongdoing. (2) Calamity sometimes has nothing to do with wrongdoing. (3) Calamity is sometimes the result of the activity of Satan rather than God’s activity. (4) Jesus seems to discourage us from asking the question of the cause of particular calamities.

Why then does Colson opt for the first principle in regards to the drought while ignoring other possibilities?

It is important to note that Colson stops just short of claiming that God has given him an authoritative message to give to the American church. While Colson himself is pretty certain that the drought is related to the church’s waywardness, he acknowledges that his reading of Leviticus immediately before seeing the newspaper article on the drought could have been coincidence.

Thus, Colson is not claiming to be an Old Testament style prophet. Old Testament prophets gave the definitive and authoritative Word of God on events. The Israelites could be sure that their defeat in a battle or a particular famine was a result of their idolatry or unfaithfulness or some other shortcomings. Colson can provide no such assurance.

Which brings me back to my question: Why does Colson take one principle taught in the Bible and apply it to the drought while ignoring other possibilities?

For the life of me, I can’t tell you why. I can only tell you that his analysis seems to be an example of the kind of overly-simplistic theological reflection that is endemic in the evangelical community. People have a tendency to grab onto one idea and run with it without considering other passages that shed additional light on the topic in question. We need more holistic synthesis of the Bible’s message and less of the “Bible roulette” that Colson exemplifies in his analysis.

Apart from these theological issues, I have a number of practical difficulties.

First of all, I’m very confused by Colson’s claim that “we” need to repent of looking for a “political savior”. Who has urged more political involvement than Colson? He lobbies for prison reform. He seeks legislation and diplomatic initiatives to stop the persecution of Christians in Africa and China and throughout the world. He wants the government to ban embryonic stem cell research. And I could expand the list to include many other issues where he urges incorporation of Christian values into the political life of the country.

Colson has champion William Wilberforce as an example for all believers to follow. And Wilberforce’s efforts to end slavery were largely political. If Colson believes we have been too focused on a “political savior”, then this is truly a stunning reversal of much of his life and ministry.

If Colson wants to say that “he” needs to repent of this, I’d understand him. I’d have no problem with Colson’s commentary if every “we” was changed to “I”. If Christians have been too focused on political involvement in the cause of Christ, then Colson is a primary cause of this misdirected effort. He can repent of it and make restitution by modeling the proper kind of balance between political action and devotion to God.

Secondly, I wonder if Colson thinks that we should look for divine reasons behind all calamities. Was the Indian Ocean tsunami God’s judgment on Muslims for the persecution of Christians? Is AIDS God’s judgment on sexual misconduct? What is God trying to say to us in Katrina? What is the message from God in the terrorist attacks of 9-11?

In regard to 9-11, you may have noticed that evangelical Christians on the political right have sometimes suggested that the those attacks were God’s judgment on America for everything from gay marriage to the ACLU while evangelicals on the political left imagine that the attacks resulted from God’s displeasure with America’s materialism and failure to care for the poor. This game has endless possibilities.

Finally, if we do identify a particular calamity as the judgment of God, how should we respond? Perhaps we should not work to alleviate the suffering caused by such events. After all, if my friend is punishing his daughter by grounding her and taking away her cell phone and music and computer, I probably should not be sneaking up to her bedroom window at night and handing her an IPOD.

If the drought in the southeastern US is God’s judgment on the American church, then perhaps we should just let those people suffer until they get the message and “get their poop in a group”. And, if the drought is God’s judgment, then water conservation and the construction of new reservoirs and the development of new water management practices will not alleviate the problem. We need repentance rather than civil engineering.

Here is the bottom line: For both theological and practical reasons, the whole tone and premise of Colson’s commentary is misguided. If Colson has a prophetic revelation from God and can tell us with certainty that God has sent the drought to punish the American church, then we have a different issue that we need to discuss.

Absent that, his speculations do no good. Do we really need tsunamis, epidemics, hurricanes and terrorist attacks to tell us that God is not in favor of religious persecution and sexual misconduct and materialism?

And, has there ever been a time when the church was fully living up to its calling? The Christian community has always been imperfect and always will be. As a result, we can always imagine that a particular man-made or natural disaster – global warming, the sub-prime mortgage meltdown, AIDS, a Category 5 hurricane, etc. – is God’s judgment on His imperfect church.

In fact, the unfaithfulness of the church has been a constant and favorite theme of Christian leaders since I became a Christian in 1972. Since day one, I’ve been told that we are not studying our Bibles enough; we are not praying enough; we are not giving enough; we are not dedicated enough. ENOUGH!

The message of judgment and condemnation has not worked. It has not brought transformation and it never will. As a Christian community, we have preached the mixed message that John got from the Steward and we have reaped mixed results as a consequence.

So let’s try something different and let me start with Colson. This is what I know for sure: God loves Chuck Colson. He loves all that he has done for prisoners and for those who are persecuted. Despite his many imperfections and failures, God is at work in Colson’s life and he will continue to work in his life in spite of his mistaken message about the drought. After all, God didn’t abandon Colson when he committed criminal acts in the Watergate era.

And, the same is true of everyone who is reading this right now. God loves you. He loves the good you have done down to the smallest kindness. Every evil thing you have done or that has been done to you is something that He is working to cure and heal and redeem.

“Blessed are the merciful,” Jesus said (Matthew 5) and James reminds us that “mercy triumphs over judgment.” (James 2). Let us hope that the Christian community soon becomes know for its mercy rather than its tendency to look for the judgment of God in every current event.

As always, your comments, both favorable and unfavorable, are welcomed, appreciated and desired.


*For those of you who might be challenged in the area of modern American pop culture, the phrase “Well isn’t that special?” is one of the catch phrases of Dana Carvey’s self-righteous Church Lady character from Saturday Night Live.

Look here to read Colson's article on the drought.

Author's Note on January 1, 2008: Wayne's deleted comment below was deleted because it was an accidental duplication of his original comments. Wayne's comments are always welcome.

Is Jimmy Carter Promoting an American Theocracy?

New York Times reporter David Kirkpatrick reports that Jimmy Carter made the following statement at Bill Hybels' leadership conference in the summer of 2007:

“I think that a superpower ought to be the exemplification of a commitment to peace ... I would like for anyone in the world that’s threatened with conflict to say to themselves immediately: ‘Why don’t we go to Washington? They believe in peace and they will help us get peace.’ This is just a simple but important extrapolation from what a human being ought to do, and what a human being ought to do is what Jesus Christ did, who was a champion of peace.”

Really? Is Carter actually suggesting that the American state should reflect the values of Jesus Christ? This is the clear implication of his statement. According to Carter, the state should do what good human beings do and good human beings will exemplify the values of Jesus.

If asked for proof that Jesus was a champion of peace, I imagine that Mr. Carter might quote from the Sermon on the Mount. "Blessed are the peacemakers," Jesus said, "for they shall be called the sons of God" (Matthew 5:9). Rather than demanding an "eye for an eye", Jesus requires us to "turn the other cheek" (Matthew 5:38-39). "Love your enemies, do good to those who hate you .... " (Luke 6:27) is another well-known command of the Prince of Peace and it tells us to seek reconciliation rather than retaliation.

Fair enough. Jesus is in favor of peace.

Interestingly, in that same famous sermon, Jesus also speaks about many other moral issues - issues such as divorce and adultery. He condemns both. Does Carter think that the American government should incorporate Jesus' views on divorce and adultery into its public policy? If not, why not? After all, those values are right there in that same Sermon on the Mount that Carter would rely on for proof that Jesus is a promoter of peace. If the American government should exemplify Jesus' views on peace, why should it not also adopt his views on marriage and illicit sex?

Imagine what would happen if James Dobson appeared at the National Association of Evangelicals' national meeting and said:

“I think that a superpower ought to be the exemplification of a commitment to marriage ... I would like for anyone in the world that’s threatened with divorce to say to themselves immediately: ‘Why don’t we go to Washington? They believe in marriage and they will help us preserve our marriage.’ This is just a simple but important extrapolation from what a human being ought to do, and what a human being ought to do is what Jesus Christ did, who was a champion of marriage.”

I can easily imagine that Jimmy Carter would be critical of such a view. He has repeatedly been critical of politically conservative Christians and their attempts to pursue moral agendas that they think Jesus cares about.

But regardless of Carter's reaction, the usual voices on the political left would undoubtedly be outraged by such statements coming from Dobson. They'd be at DEFCON1 in the blink of an eye. From their bunkers, they'd issue dire warnings about the dangers of religious fundamentalists who want to take over this country and turn it into a Christian theocracy. They'd wag their fingers and tells us that you can't legislate morality.

Yet this same reaction does not occur to them when Carter suggests that the federal government should be promoting peace in the world because this is what Jesus wants.

Why?

I think it's pretty simple. They believe, in the face of all the evidence from world history to the contrary, that any dispute can be and should be peacefully resolved by negotiation and compromise but they do not believe in the ideal of marriage to one partner for life. They are happy to see people use Jesus to help them with causes in which they believe and they are happy to demand that Jesus be ignored in the public arena when his values conflict with their own.

Of course, this same phenomenon occurs on the political right. All political perspectives pick and choose the moral issues about which they choose to get exercised. Selective moral outrage is a common human failing.

All of these considerations bring my basic question about the interplay of Christian faith and politics into focus: Is there a principled basis for deciding which of my Christian values, if any, should be reflected in the governance of a secular state?

I'm beginning to make some progress on this question and I'm happy to get any thoughts you might have on this matter.

Author's Clarification on 12/31/2007: Nothing in the discussion above was meant to be judgmental towards those who might have stumbled in the areas of divorce or adultery. While Jesus condemns both practices, he was compassionate and merciful to those he met who had failed in these matters.